In 2020, protests broke out across the United States over a series of Black Americans’ deaths at the hands of the police. Support for the Black Lives Matter movement and calls to redirect funds away from police budgets and toward programs that help the Black community surged. In June 2020, Buzzfeed News reported that corporations such as Apple and Microsoft as well as individuals had donated millions of dollars to the Black Lives Matter Foundation to show their support for the movement.
There was just one problem. The Black Lives Matter Foundation has no connection with the Black Lives Matter Global Network. It was an entirely separate organization founded in 2015 to promote better relationships between the police and the Black community. Moreover, although the foundation had already collected hundreds of thousands of dollars before 2020, it hadn’t put any of its plans for police-community relations into effect.
As this story shows, when you donate money to charity, it’s vital to do your homework. Many of the donors who gave to the Black Lives Matter Foundation simply searched for “Black Lives Matter” on a crowdfunding site such as GoFundMe and clicked on the first organization they found. If they had checked out the foundation first, they would have seen it was a very different organization from the one they wanted to support. (The foundation has now added a disclaimer to its mission statement saying it is not affiliated with the Black Lives Matter Global Network, but only after receiving cease-and-desist orders from attorneys general in both New York and California.)
When terrible things happen, it’s natural to want to help as quickly as possible. However, if you simply give to the first organization you find, your money may not achieve this goal. At best, the organization might waste a good portion of your donation on costs unrelated to its cause. At worst, it might be an outright scam.
So if you’re giving your hard-earned money to a charity, it’s worth taking an extra step to make sure the one you’ve chosen is really going to use it wisely. It only takes a few minutes to check, and it can mean the difference between doing real good with your donation and having most or all of it go to waste.
Features of the Best Charities
The most crucial thing about any charity you give to is that it supports a cause you believe in. No matter how wisely a charity uses its money, there’s no point in giving to it if its goal is to prevent heart disease and yours is to fight climate change.
However, within any given category, some charities do a better job than others. Your money will do the most good in the hands of a charity that has a clear purpose, uses every dollar as effectively as possible to support that purpose, and has effective oversight to prove it.
1. Programs to Match Its Purpose
When you give money to a charity, you should have a clear idea what it’s going to do with it. Some charities, such as the Black Lives Matter Foundation, have lofty-sounding goals like “promot[ing] peaceful interactions, understanding and healing with the police.” However, when you take a closer look at what they actually do, you see they have no programs in place to achieve these goals. The only programs the Black Lives Matter Foundation discusses in its mission statement are “get to know each other gatherings” between citizens and the police — and according to Buzzfeed, it has not spent any money on them.
The best charities can draw a clear line between their stated mission and their daily work. Any charity can say that its goal is to fight cancer. But a good one can tell you which specific weapons it’s using in the fight — such as funding for research into new treatments, monetary relief for patients who can’t work, or friendlier hospital environments for children with cancer. That allows you to see exactly what the charity will do with your money and decide if it’s worthwhile.
2. Effective Use of Funds
It’s not enough for a charity to say what it wants to do with your money. It has to be able to show that it’s using your money for that purpose. According to Consumer Reports, there are so-called charities that devote as little as 4% of the money they raise to their actual programs. The rest goes toward their own costs — things like paying their staff, renting offices, and sending out mailings. If you donated $100 to one of these charities, only $4 would go toward the cause you want to help.
Fortunately, most charities are more efficient with their funds. The charity watchdog group Charity Navigator says that 90% of the charities it evaluates put at least 65% of the funds they raise toward programs and services, and 70% of them use at least 75% of their funds for this purpose. If you want your dollars to have as much impact as possible, donate them to charities that do the same.
Of course, a charity has to spend some money on administration and fundraising. Without fundraisers, it would have no way to bring in additional donations, and without administration, it would have no way to process those donations and direct them toward its programs. However, these costs don’t have to be high. Some organizations rated by Charity Navigator, such as food banks, spend less than 3% of their funds on administration and less than 5% on fundraising.
3. Efficient Fundraising
Even if a charity spends only 5% of its income on fundraising, that money isn’t well spent if it doesn’t do a good job of raising funds. For example, if an organization spent $10,000 on a fundraiser that brought in only $10,000 in donations, it would end up with no more money than it had before. In this case, the entire fundraiser would be a pure waste of time and effort.
The best charities use their fundraising dollars much more efficiently than this. They minimize the amount they spend on each call or letter, and they direct those calls and letters to the people who are most likely to give. Using these methods, a well-run charity can bring in $2, $3, $4, or more for every $1 it spends on fundraising.
Charity Watch, another charity watchdog group, rates an organization as “highly efficient” if it spends no more than $25 for each $100 it raises. Charity Navigator is even stricter, reserving its top scores for organizations that spend no more than $20 for every $100 raised.
Of course, it’s easy for a charity to claim that it’s using your money on programs and raising money efficiently. However, if there’s no one overseeing the organization’s activities, you have no way of knowing if that’s true. That’s why a good charity needs an independent board of directors to watch over its activities. The board keeps a close eye on the charity’s fundraising and use of funds to make sure it’s using its money to meet its goals.
Charity Navigator and the BBB Wise Giving Alliance agree that a charity’s board of directors should meet certain requirements. It should have at least five board members, so power is not concentrated in the hands of just one or two people. These members must meet regularly and keep track of what happens in their meetings.
Ideally, the board members should not receive a salary from the charity or borrow any money from it. Doing either of these things would give them a financial incentive to say the charity is in good shape even if it’s not. Unpaid board members can be truly independent and make judgments that aren’t clouded by financial interest.
The BBB Wise Giving Alliance gets even more specific than that. It says a charity should conduct regular assessments — at least one every two years — of how well the organization’s programs are meeting its goals. The board should see the reports of these assessments and sign off on any changes to be made in the future. When you support an organization with this kind of oversight, you can feel confident your money is doing what you want it to do in the world.
A reputable charity should be willing to explain how it uses its money, not just to its own board but to the public. All incorporated nonprofit organizations in the U.S., known as 501(c)(3) organizations, are required to file an annual report with the IRS called Form 990, which reveals details like:
- How many people are on the board
- How many employees the charity has and how much money it spends on their salaries
- How many unpaid volunteers it has
- How much income it took in over the past year and from where
- How much it spent and what its biggest expenses were
However, the best charities go beyond what the law requires. They have regular audits of their finances by an independent accountant, and they make these reports available to the public. They also disclose who’s on their board, how much they make, and how salaries are set for their executives. That way, donors can see the organization isn’t just enriching its own employees or board members with the money that should be going toward programs.
Identifying the Best Charities
As you can see, there are many different criteria that distinguish good charities from bad ones. Researching all these facts on your own every time you wanted to give money to an organization would take many hours of work.
Fortunately, you don’t have to. Several charity watchdog organizations have done the work for you. Each year, they research and evaluate charities from all over the country and summarize their findings in an easy-to-read snapshot. As a donor, all you have to do is type the charity’s name into the watchdog organization’s site to get a quick picture of its mission, finances, oversight, and transparency.
BBB Wise Giving Alliance
The BBB Wise Giving Alliance rates charities on 20 standards, sorted into four broad categories:
- Governance and Oversight. To meet the Wise Giving Alliance’s standards, a charity must have a board that is “active, independent and free of self-dealing.” The board must have at least five voting members who meet at least three times a year. No more than 10% of those members can receive any pay for their service, and paid members cannot serve as the chair or treasurer. Board members are also not allowed to vote on any decision in which they have a conflict of interest, such as hiring one of their family members or working jointly with a business they own.
- Effectiveness. The Wise Giving Alliance requires charities to set “defined, measurable goals and objectives” and measure their success at achieving them. At least once every two years, they must prepare a report evaluating their programs and submit it to the board. It should cover such topics as the organization’s stated goals, how well its activities fit with those goals, how effective its programs are, and what steps it could take to improve its performance.
- Finances. Seven of this watchdog’s 20 standards relate to how well it uses its money. They require charities to spend at least 65% of their money on programs and not hoard money that could go toward programs. They also can’t spend more than 35% of the donations they receive on fundraising. Each year, a charity must prepare an accurate financial statement covering its income and expenses for the past year as well as a budget for the next year to be approved by the board.
The BBB Wise Giving Alliance creates a report for each charity it reviews. The report sums up whether or not it meets each of these 20 standards. If the answer for any standard is unclear, it’s marked as “unable to verify.” A charity that meets all 20 standards earns the label “BBB Accredited,” allowing donors to identify these top-notch organizations at a glance.
To see the BBB’s report for a specific charity, all you have to do is type its name into the search box on the main page. If you’re not sure of the name, you can view a complete list of all the organizations this watchdog covers. You can sort the list by the first letter of the charity’s name or by the type of cause it supports, such as the arts, the environment, or health.
However, there’s no way to sort the list to show only BBB Accredited charities. You must click on each organization individually to see whether it does or does not meet the watchdog’s standards.
A report from the BBB Wise Giving Alliance sums up its information in a simple yes-or-no form: Does a charity meet this standard, or doesn’t it? If you want a more detailed look at a charity, one that shows you exactly how well it performs on each standard, Charity Navigator can provide it.
This watchdog covers only certain types of charities. They must be 501(c)(3) organizations based in the U.S., are at least 7 years old, and have at least $1 million in annual revenue, including at least $500,000 raised from donations. They must also spend at least 1% of their revenue on fundraising and 1% on administration. Additionally, certain types of charities — such as land trusts, hospitals, and schools — are never covered.
Thus, when you go to Charity Navigator, you may not be able to find a report for the charity that interests you. However, if it has one, it will be quite detailed. Its ratings cover 24 standards across four broad categories:
- Financial Efficiency. A charity’s financial efficiency is a measure of how effectively it uses its funds. Charity Navigator evaluates it using information from the charity’s Form 990. It considers what share of the charity’s expenses go to programs, administration, and fundraising. It also looks at how much money it raises for each dollar spent on fundraising.
- Financial Capacity. A charity’s financial capacity is its ability to meet its goals. To measure it, Charity Navigator compares the charity’s Forms 990 across several years to see how fast its programs are growing. More rapid growth is a sign that it’s doing more and more each year to help people. It also looks at how much working capital (readily available money) the charity has to pay for its programs and at how its liabilities (debts) stack up against its assets.
- Accountability. Charity Navigator defines accountability as the answer to the question, “Does the charity follow good governance and ethical best practices?” To answer this question, it looks at 12 pieces of data from Form 990. It considers how the board works, whether any of the charity’s money has recently gone to purposes other than its stated mission, what the CEO’s salary is, and how it’s calculated. It also considers whether the organization has policies for dealing with conflicts of interest, handling complaints from employees, and storing important records.
Charity Navigator gives each organization a score on each of its standards, then plugs them all into a formula to give the organization three overall scores on a 100-point scale. There’s one score for financial health, one for accountability and transparency, and one for the two put together. It also provides scores on a 4-star scale for each of these categories. When you view an organization’s report on Charity Navigator, you see all three scores — both the percentile and the star rating — at the top of the page. You can scroll down the page for more detail on the organization’s mission, its finances, and how it scored on each standard.
The search function on Charity Navigator’s website is a bit more sophisticated than that of the BBB Wise Giving Alliance. Instead of requiring you to type in the name of a charity, it can find the organization based on an abbreviation, such as NRDC for Natural Resources Defense Council. It also allows for advanced searches based on such factors as a charity’s size, location, star rating, or the cause it supports. And when you’re viewing the report for one charity, you can scroll down to the bottom of the page to see other highly-rated charities that support the same cause.
Unlike Charity Navigator and the BBB Wise Giving Alliance, CharityWatch does not explain all its standards for rating charities. It says that its two main criteria are the percentage of a charity’s expenses that go toward programs and the amount it spends on fundraising for every $100 it raises. However, it also has standards it doesn’t explain in detail covering factors such as governance, disclosure of financial information, and how much money a charity keeps in reserve rather than spending it on programs.
To rate organizations, CharityWatch examines a wide variety of financial documents, including the organization’s audited financial statements, federal and state tax forms, and annual reports. It then distills all this information down to a single letter grade, from A+ to F. For example, an organization that devotes 65% of its spending to programs and spends $30 for every $100 it raises would get a B-. The top grade, A+, goes only to charities that put at least 90% of their spending toward their programs and spend no more than $4 to raise $100.
Because it spends so much time evaluating each organization, CharityWatch doesn’t rate nearly as many of them as either Charity Navigator or the BBB Wise Giving Alliance. Currently, it covers only 600 charities on its site. It focuses on large charities that have been around at least three years, works on a nationwide scale, and receive at least $1 million per year in donations.
The CharityWatch website has a list of “top charities” that earn grades of B+ or better. Anyone can view this list in full, sort it by category, and click on an organization’s name to see its full report. However, to view the full report for any organization that isn’t on the “top charities” list, you must sign up for a membership to the website, which costs $50 per year.
The big three charity watchdogs focus mainly on large, high-profile charities that lots of people are likely to search for. However, there are also many smaller, lesser-known charities that are doing useful work throughout the world. Sites that rate these smaller charities include:
- GiveWell. This site offers a select list of charities that “save or improve lives the most per dollar.” Most of these are nonprofits that work in the poorest parts of the world, such as sub-Saharan Africa. GiveWell focuses on charities that engage in specific programs that research has shown to make a big difference in people’s lives, such as vaccination, distributing mosquito nets to prevent malaria, and giving cash directly to the poor. It reviews charities’ documents, speaks to their representatives, and conducts site visits to find cost-effective and transparent programs that can handle more funding at this time. It publishes full reports only for the handful of organizations that make its list of top charities for any given year.
- GlobalGiving. This nonprofit crowdfunding site helps connect small charities around the world with donors, including individuals and businesses. It vets organizations by examining their legal documents, financial records, and program materials as well as making in-person visits. It repeats this process every two years to make sure organizations are still performing up to its standards. It also requires every organization on the site to submit quarterly project reports, which it emails to donors so they can see how the organizations are using their money.
- ImpactMatters. This newer website, launched in November 2019, rates charities based on their impact: the amount of good they do for each dollar. To calculate this figure, they start by using social science research to evaluate the benefits of a general type of program, such as tree planting. Then they look for nonprofits doing this type of work and examine their Form 990s, annual reports, and other paperwork to see how much they do for each dollar. Based on this analysis, they assign each charity a star rating from 1 to 5. You can search the nonprofits on its site by their star rating, their overall cause, the specific type of work they do, or the people it benefits. Once you find an organization you like, you can donate any amount to it right from the ImpactMatters site.
Giving to charity isn’t just a way to help others — it’s also a way to help yourself. Research published in the Journal of Economic Behavior & Organization by happiness economists shows that giving to charity makes people happier. It makes you feel good about yourself and enhances your sense of connection to others.
However, you’ll feel even better about your donation if you know your money is really going to change people’s lives. By taking just a few minutes to check out a charity before you give, you can make sure your money will be used effectively, making as big a difference per dollar as possible. And even more important, you’ll know your money is truly going to the cause you want rather than just lining the pockets of a potential scammer.
Do you typically check out charities before you donate to them? If so, what do you want to know about them before you give?